Goldman Sachs misses revenue estimates after taking $470 million hit on Marcus loans

A hangover from Goldman's consumer efforts and weaker-than-expected bond trading revenue contributed to a disappointing quarter for the investment bank. Read more...

David Solomon, chief executive officer of Goldman Sachs Group Inc., during a Bloomberg Television at the Goldman Sachs Financial Services Conference in New York, US, on Tuesday, Dec. 6, 2022. 

Michael Nagle | Bloomberg | Getty Images

Goldman Sachs posted first-quarter results Tuesday that missed analysts’ expectations for revenue after taking a $470 million hit tied to the sale of consumer loans.

Here’s what the company reported:

  • Earnings: $8.79 a share vs. $8.10 estimate from Refinitiv
  • Revenue: $12.22 billion vs. $12.79 billion

The bank said earnings fell 18% to $3.23 billion, or $8.79 a share, topping the estimate of analysts surveyed by Refinitiv.

That EPS beat was also driven by Goldman’s loan sale because offloading the debt allowed it to release $440 million in reserves for loan losses, which added roughly $1.20 per share to earnings, Mike Mayo of Wells Fargo said in a research note.

Companywide revenue fell 5% to $12.22 billion, below estimates on the consumer loan hit and weaker-than-expected bond trading and asset and wealth management results.

Shares of the New York-based bank slipped nearly 3% in morning trading.

Unlike its more diversified rivals, Goldman gets the majority of its revenue from Wall Street activities, primarily trading and investment banking. Heading into the quarter, analysts wondered whether turmoil during March — in which two American banks failed and a global investment bank was forced to merge with a longtime rival — would provide a good or bad backdrop to trading.

While JPMorgan Chase and Citigroup beat first-quarter estimates in part because of better-than-expected fixed income trading, Goldman’s traders didn’t fare as well.

Bad comps

Fixed income trading revenue fell 17% to $3.93 billion, roughly $230 million below the StreetAccount estimate, on lower activity in currencies and commodities. Equities trading revenue slipped 7% to $3.02 billion, edging out the $2.9 billion estimate.

While investment banking revenue remained weak, falling 26% from a year earlier to $1.58 billion, that was better than the $1.44 billion estimate.

Goldman’s results show how closely the bank is tethered to the ups and downs of Wall Street. With both trading and investment banking well below results from a year ago, the bank had few options to generate revenue growth.

The bank’s combined trading and advisory revenue decline was a “worst in class” drop of 16%, according to Mayo.

One metric that is closely watched by investors, the bank’s return on tangible equity, hit 12.6% in the quarter on an annualized basis. That is below the bank’s longer-term target of 15% to 17% returns.

The firm’s other units had mixed results. Goldman’s asset and wealth management division posted a 24% increase in revenue from a year earlier to $3.22 billion, well below the $3.7 billion estimate. The bank’s platform solutions business generated $564 million in revenue, a 110% increase from a year earlier and topping the $535.1 million estimate.

So far this earnings season, big banks including JPMorgan Chase and Bank of America outperformed their smaller peers, helped by an influx of deposits after Silicon Valley Bank’s meltdown. But since retail banking plays a small — and shrinking — role at Goldman, much more focus will be on trading and investment banking and what expectations are for the rest of the year.

More to come?

In fact, the bank’s foray into consumer banking, which was pulled back in recent months after losses and management turnover, weighed on the quarter’s results.

Goldman said it posted a roughly $470 million loss on the partial sale of its Marcus loans portfolio, and moved the remainder of loans to the “held for sale” category.

On that topic, analysts will likely ask CEO David Solomon if more unwinding is left. The CEO said in February that Goldman was weighing “strategic alternatives” for its consumer platforms business. That has been interpreted as potentially selling off the GreenSky business it acquired recently or offloading credit card partnerships with Apple and others.

And they’ll likely ask for details about Goldman’s part in helping Apple offer new savings accounts; the product launched with a higher interest rate than the bank’s own Marcus product has.

Goldman shares have dipped 1.1% this year before Tuesday, a better showing than the nearly 17% decline of the KBW Bank Index.

Earlier Tuesday, Bank of America topped estimates on higher net interest income. Last week, JPMorgan Chase, Citigroup and Wells Fargo all topped profit expectations amid rising rates. Morgan Stanley is scheduled to release results Wednesday.

This story is developing. Please check back for updates.

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